The socialist calculation problem

The standard leftist/socialist argument about the economy is that it would all work vastly better if only it were planned. Omniscient and benevolent bureaucrats (or possibly politicians although few believe in the benevolence or omniscience of that tribe any more) will decide what should be produced where and how at what price and children will therefore gambol happily in the streets. The delusion isn’t new of course, it’s been around at least since Diocletian, but despie repeated failures still it persists.

Post 1945 Labour saw it as the way to build the New Jerusalem, the 70s was infested with the idea, even nominal Conservatives like Michael Heseltine have embraced it. But as various people have tried pointing out over the centuries, economies are complex things and it’s going to be difficult to even measure everything, let alone make decisions in time to have an effect. Even the manifest failures of GOSPLAN in running a relatively simple society doesn’t seem to cool the ardour.

The latest meme to ride to the rescue is that all encompassing cry of “computers!” As they get better, faster, more complex, we can model more complex things upon them. We will, at some point, reach that happy place where we can model the entire economy properly and thus plan it. Hurrah!

Then there is the sheer number of products: Eric Beinhocker, author of The Origin of Wealth, reckons there are probably 10 billion distinct products and services available in a modern economic environment such as London, Tokyo or New York.

No, you’re simply not, ever, going to be able to collate the information and then run the program on 10 billion discrete variables. It just isn’t going to happen whatever happens to computers in the future.

For those who do suffer from the planning delusion might I suggest dusting off some Hayek?